Employment Law and Litigation

The Fair Labor Standards Act (FLSA), which applies to all employees employed in the private sector as well as to government employees, establishes the minimum wage, overtime pay requirements, recordkeeping requirements, and child labor standards. It was the FLSA that first introduced the forty-hour workweek, the concept of minimum wage, and time and a half for overtime work, along with prohibiting “oppressive child labor,” something that was common in 1938 when the FLSA was first drafted.

The Department of Labor has long tried to make changes to the FLSA’s overtime regulations, and the fruits of its labor may be just around the corner, and were set to go into effect December 1, 2016. The changes, however, are not without opposition, and the fate of the changes is currently on hold. The changes, should they go forward, may impact dental and medical practice employers in particular, who often find themselves in murky waters when classifying employees as exempt or non-exempt.

The Changes

In determining which employees are exempt from receiving overtime pay and which employees are not exempt, the FLSA takes earned compensation into account. Under the old rule, if executive, administrative, and professional employees earned less than $455 per week, or $23,660 per year, such employees were not exempt from receiving overtime pay. The new rule changes those benchmarks to $913 per week, or $47,476 per year, increasing the number of non-exempt employees. Additionally, under the old rules, employees who are exempt from receiving overtime pay under provisions relating to “highly compensated employees” must be paid $134,004 per year, up from $100,000, again increasing the number of non-exempt employees.

The new rule will prompt employers to make necessary changes to their classification of executive, administrative, and professional employees. If an employee’s salary no longer meets the new minimum requirements, and another exemption does not apply, reclassification may be necessary, accompanied by overtime pay. Alternatively, employers may increase salaries to maintain exemptions.

The Challenge

In an 11th hour plot twist, on November 22, 2016 the U.S. District Court in Sherman, Texas issued an order enjoining the Department of Labor from implementing the new rule. Prior to this, 21 states filed an emergency motion for a preliminary injunction to stop the new rule, arguing that the Department of Labor has exceeded its authority in increasing the salary minimums for exempt employees. Additionally, the fact that the changes do not take the nature of employee duties into account, which can often determine whether an employee is exempt or non-exempt, has been another argument of the new rule’s opponents. A date for a full ruling by the Court has not yet been announced. So, until the Court rules on the Department of Labor’s authority to implement such changes, employers do not need to comply with the new rule and can maintain the status quo.

Pierce & Mandell’s experienced employment law attorneys can guide employers and workers through the classification and employment process. We encourage employers and workers alike to contact us to ensure that terms of employment are compliant with the relevant laws.

Small business owners who have decided to reimburse their employees’ health insurance premiums as a way of lowering the burdensome cost of directly providing health insurance are learning the meaning of the expression “no good deed goes unpunished.”

Faced with the expense of providing health insurance as required by the Patient Protection and Affordable Care Act (“PPACA”), some small business employers instead encouraged their employees to buy their own health insurance plans (either on or off the marketplace) and then reimbursed their employees for all or a portion of the premiums.

But what employers thought was a good-faith attempt to help meet the health insurance needs of employees at a lower cost to the business is instead being viewed as a violation of the PPACA and could cost employers far more money than providing a health insurance plan would have, as staggering penalties begin to add up.

The described reimbursement arrangement, also called employer payment plans, are considered under the PPACA to be part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to employees. As such, these arrangements are considered group health plan coverage under the PPACA and are subject to the market reform provisions of the PPACA applicable to group health plans. Such arrangements cannot be integrated with individual market policies, and as such fail to comply with the PPACA market reforms. Therefore, reimbursement arrangements violate the PPACA.

This violation comes at a heavy financial penalty of up to $100.00 for each day such an arrangement is in place, per applicable employee. This can total $36,500 per year per employee.

Small businesses are not taking this sitting down. On Thursday July 23, 2015 small business owners, organized by the National Federation of Independent Business, took their case to Capitol Hill to lobby Congress to change this provision of the PPACA. Their argument is that the penalty punishes small businesses that cannot afford to provide employer-sponsored health insurance, but are still trying to help employees meet their health insurance needs through another method. Larger businesses have also expressed opposition to this provision of the PPACA.

The proposed legislation aimed at changing that provision is the Small Business Healthcare Relief Act, which enjoys bipartisan support in both the House and Senate where it has been introduced. In its current form, the Act allows employers with fewer than 50 employees to offer reimbursement arrangements without penalties. Those who support the Act believe that if President Obama truly desires, as stated, common-sense improvements to health care, then the Act should pass.

If the Act does not pass, small employers do have one other option. Although reimbursement arrangements are considered violations of the PPACA and are subject to heavy penalties, additional compensation arrangements are not. This alternative arrangement allows employers to provide additional compensation to employees that is intended to help meet health insurance needs. While employees have the option to use the additional compensation to help pay for health insurance premiums, employers cannot make such use a condition of the provision of additional compensation, and thus cannot guarantee that employees will use the additional compensation to acquire insurance. This option, therefore, is rendered less effective for helping meet employees’ health insurance needs.

According to the U.S. Treasury Department, 96% of all businesses in the U.S. have 50 or fewer employees, so their collective voice in Washington will certainly be heard. But until Congress acts, small business owners will have to tread carefully or risk an even greater financial burden than the one they were trying to alleviate in the first place.